When you pass away, you want to be confident that your property and belongings will go to the right people.
While you’ve likely heard the term “trust” and “will,” you may not know what they are or the difference between the two. Both are essential end-of-life planning documents that help you define which assets go to whom, and how the assets can be used.
Below, we explain the two terms in more detail, outlining key differences.
What is a trust?
According to Fidelity a trust is:
“An agreement that allows a third-party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.”
A trustor establishes the trust and chooses which assets are placed in it. Assets may include your primary residence, as well as personal items like a boat, car, out-of-state real estate, timeshares and so on. The beneficiary is the person who receives the assets when the trustor passes away.
With a trust, you have more control over when and to whom distributions may be made. Trusts are especially beneficial if you have a beneficiary who is under a disability.
Trusts can be used while you’re still alive. For example, you may set up a living trust to create a fund for your children to access when they reach a certain age. This is considered a revocable trust because you remain in control of the assets during your lifetime. It’s flexible and can be dissolved or modified at any time, should circumstances change.
An irrevocable trust, on the other hand, generally transfers your assets out of your personal control or estate. This means, once it’s established, it is somewhat complex to change the terms or cancel the trust. Irrevocable trusts are very useful to enhance a person’s eligibility for government benefits.
What is a will?
According to Fidelity, a will is:
“A legal document that coordinates the distribution of your assets after a death and can appoint guardians for minor children.”
Your will can consist of big and small items, including those that hold sentimental value. The person(s) named in the will to manage these items is called an executor because he or she executes your wishes.
For assets that do not allow for the naming of beneficiaries, the will is where you establish who will get them, as well as any related special instructions. This includes assets, such as investment and retirement accounts.
If you pass without a valid will in Ohio, you become what is considered intestate. This usually means your assets will go to your closest relatives, including a spouse, children or parent.
>>>Related Resource: Click here for more information on intestate succession in Ohio.
What is the difference between the two?
The main difference between a trust and a will is that a will goes into effect only after you pass, whereas a trust takes effect as soon as it’s created.
A will covers any property that is only in your name. In order for property to be included in a trust, it must be transferred over.
A will also passes through probate, where a court oversees the administration of it and ensures it gets distributed in the way the deceased wanted. A trust passes outside of probate, so a court does not need to see it.
With each of these documents, an experienced attorney can help you understand how best to use them in your end-of-life plan.
Does either document cover final arrangements?
When a death is near, some people may share their final wishes in writing—separate from a trust or will.
While an experienced attorney can help you prepare ancillary documents—such as a power of attorney and health care proxy on top of a trust or will—it’s rare that either includes information about how you want to be remembered when it comes to final arrangements.
This is because a trust or will may not be discovered until after a burial or cremation, so it’s best to record final wishes ahead of time.
A Will and Trust Are Just the Start: Document Your Future Final Wishes with Preplanning
Both a will and a trust help document your future, and sometimes final wishes regarding accounts and assets, but neither document covers it all. As you plan for your future, consider the benefits of preplanning your final wishes.
Preplanning allows you to document your final wishes in writing to save your family time, money and worry. For more information on the emotional and financial benefits of preplanning, download The Seniors’ Guide to Funeral Arrangements.
Editor's Note: This post was reviewed and approved by attorney Richard A. Myers, Jr. of Richard A. Myers, Jr. & Associates, LLC for accuracy.